Implementation of the WTO Trade Facilitation Agreement (TFA) has the potential to increase global merchandise exports by up to $1 trillion per annum, according to the WTO’s flagship World Trade Report released on 26 October 2015 in Geneva – the first detailed study of the potential impacts of the TFA based on a full analysis of the final agreement text. Significantly, the Report also found that developing countries will benefit significantly from the TFA, capturing more than half of the available gains.

Director-General Roberto Azevêdo, in marking the launch of the report, said:

“The world is more connected than ever before. More and more developing countries are seeking to join global trade networks. Yet, all too often, outdated and uncoordinated customs processes slow down the movement of goods and raise costs to prohibitive levels. By standardizing, streamlining and speeding-up customs processes around the world, the WTO’s Trade Facilitation Agreement will help to solve this problem. It is global trade’s equivalent of the shift from dial-up internet access to broadband – and it will have a similar impact.

“This report takes a rigorous, detailed look at the impact of the Trade Facilitation Agreement. It provides new evidence of the significant boost that the Agreement will provide by expanding world trade, reducing costs and helping developing and least-developed countries to integrate into an increasingly globalized production system. The report also highlights previously unseen benefits for developing and least-developed countries, such as increased investment and economic diversification.

“This underlines the importance of implementing the agreement in full – and doing so as quickly as possible. In fact, the report shows that the benefits of the agreement will be substantially larger depending on the scope and pace of implementation. The more extensive and faster the implementation of the TFA, the greater the gains.”

The TFA was agreed by WTO members at a ministerial conference in Bali in December 2013. It was the first multilateral agreement successfully negotiated at the WTO. The 2015 World Trade Report is the first major study since the agreement was reached in Bali to examine its economic implications in full. Previous studies which were published by other institutions in advance of the Bali conference produced various predictions about the potential effects of trade facilitation in general and the TFA in particular. The aim of this Report is to provide a fresh, rigorous analysis based on a clause-by-clause study of the final agreement text.

The Report’s findings support those of previous studies on the scale of the potential headline benefits while also giving significant further detail and outlining a range of other benefits of the agreement, particularly for developing and least-developed countries. For example, the TFA could help developing countries diversify their exports, increase their involvement in global value chains, expand the participation of small and medium enterprises in international trade, help to attract more foreign direct investment, increase government revenues and reduce corruption.

Key findings on the impact of the TFA

• Global merchandise exports estimated to increase by between $750 billion and $1 trillion per annum.

• Developing countries’ exports estimated to increase by between $170 billion and $730 billion per annum.

• Developed economies’ exports estimated to increase by between $310 billion and $580 billion per annum.

• Fuller, faster implementation of the TFA will increase the likelihood of impacts reaching the higher ends of these ranges.

• Overall boost to world export growth per annum estimated at up to 2.7 per cent.

• Overall boost to global GDP growth per annum estimated at 0.5 per cent.

Other benefits of the TFA

• The TFA is expected to help developing countries diversify their exports. If the TFA is fully implemented, developing countries could increase the number of new products exported by as much as 20 per cent with LDCs likely to see a much bigger increase of up to 35 per cent. Developing countries are expected to enter an additional 30 per cent more foreign markets and LDCs a further 60 per cent more.

• Many developing countries have sought to participate in global value chains to expand their trade, improve access to technology and increase productivity. Timeliness and predictability in the delivery of intermediate goods are essential to the successful management of global value chains. As the TFA is expected to reduce both delays and variability in delivery time, it should increase the opportunity for developing countries to participate in these value chains.

• Trade facilitation is critical to reducing trade costs which remain high despite the steep decline in the cost of transportation, improvements in information and communication technology, and the reduction of trade barriers in many countries. Full implementation of the TFA could reduce trade costs of members by an average of 14.5%.

• Small and medium enterprises (SMEs) suffer more from administrative burdens than large enterprises particularly in developing countries. Exports by SMEs are more sensitive to delays at the border than exports by large firms. Since the TFA will reduce delays at the border, it increases the opportunity for SMEs to become more integrated in international trade.

• Based on evidence from 141 countries over a ten year period (2004-2013), there is a positive and statistically significant link between improvements in trade facilitation and inward flows of foreign direct investment (FDI). This suggests that TFA implementation will help developing countries attract more FDI. Further, implementation of the TFA could be interpreted by foreign investors as a signal of improvement in the overall investment climate which would induce inward FDI flows even in those sectors in the domestic economy which are not highly dependent on trade.

• The TFA could help to increase customs duties and other taxes collected at the border, on which many LDCs are dependent for their revenues. Inefficient trade procedures reduce the volume of goods passing through customs and result in foregone revenues. Furthermore, there is evidence to show that the likelihood to engage in fraudulent practices at the border is higher the longer the time needed to clear goods. By simplifying trade procedures and reducing the time to move goods across borders, the TFA will increase the volume of goods flowing through customs, reduce the scope for corruption and increase the amount of revenues collected.

Implementing the Agreement

The TFA is unique in the history of multilateral trade agreements in that it allows each developing and least-developed member to self-determine when it will implement the respective provisions and what it needs in terms of related capacity building support. Moreover, it ensures that this practical support will be provided. The Trade Facilitation Agreement Facility was established in 2014 by Director-General Azevêdo to help members access this support, and to provide additional support if other sources cannot be identified.

Empirical evidence highlighted in the Report shows that the availability and sustainability of financial resources are crucial. However, it also shows that other factors are necessary and critical for successful implementation of trade facilitation reforms. Strong political will at the highest levels is identified as a key factor. Other important elements identified include: cooperation and coordination between ministries and border management agencies; and private sector stakeholders’ participation.

Efforts to monitor the progress of the TFA after it comes into force should include evaluations of both implementation costs and economic impacts. Realising the full potential benefits of the Agreement will require political will over a long term process of reforms. Good indicators, more data and better analytical tools will be required to effectively evaluate the evolving economic impact of the TFA. The WTO and other international organizations and regional development banks have an important contribution to make in this regard.

Methodology

The Report’s main findings, as detailed above, have been reached using the ‘computable general equilibrium’ (CGE) model. This model was chosen in order to produce robust, conservative estimates of the potential impacts of the TFA. To complement these findings the Report also uses a separate economic modeling approach, known as the ‘gravity’ model.

Applying both approaches allows the Report to answer different questions and to compare the results to the body of existing research on trade facilitation. Both models showed that the potential gains from the TFA are large and that developing countries will capture the majority of the resulting economic opportunities.

The gravity model (which is the model more commonly used by previous studies of the impacts of trade facilitation reforms such as the well-known Peterson Institute study of 2013 for example) produced significantly higher results. This model found that the TFA would boost global merchandise exports estimated by between $1.8 trillion and $3.6 trillion. Significantly, it also found that LDC exports would increase by between 13% to 36%, much more than either developed or developing economies.

This suggests that the impacts of the TFA could prove to be even more positive in the longer term.

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